Problem: In
most cities, patients cannot find out the cost of even routine procedures before
entering a hospital and, at the time of discharge, they are often confronted
with bills that are literally unreadable. Because they lack access to the
information necessary to make price-conscious decisions, individual patients are
unable to play an effective role in containing costs in the hospital
marketplace.

Solution: All
hospitals that receive Medicare funds should be required to negotiate
preadmission prices with all patients.

Discussion: In
most cities in the United States, patients cannot find out a hospital's total
charge for a procedure prior to treatment. At the time of discharge, they learn
there is not one price, but hundreds of line item prices for everything from a
single Tylenol capsule to the hospital's admission kit. After only a few days in
the hospital, a typical bill can stretch 30 feet in length.

If restaurants priced
their services the way hospitals do, at the end of an evening meal customers
would be charged for each time they used the salt shaker, took a pat of butter
and had their water glass refilled. There would, however, be this difference: at
least they could read the restaurant's bill.

About
90 percent of the items listed on a hospital bill are in principle unreadable.
In only a handful of cases can the patient both recognize what service was
rendered and form a judgment
about whether the charge is reasonable. For example, a $30 charge for a Tylenol
capsule is common but clearly outrageous, as is a $45 charge for an admissions
kit, similar to the free kits airlines give passengers on international flights.
In other cases, the patients might recognize the service but have no idea
whether they are being overcharged.

What's a "reasonable" price for an x-ray, a complete blood count or a
urinalysis? The patient who tries to find out is in for another surprise. Prices
for items such as these can vary as much as five to one among hospitals within
walking distance of each other, and in most cases the prices charged bear no
relationship to the real cost of providing the services.

Patients who try to find out about prices prior to admission face another
surprise. A single hospital can have as many as 12,000 different line item
prices. For patients doing comparison shopping among the 50 hospitals in the
Chicago area, there are as many as 600,000 prices to compare. To make matters
worse, different hospitals frequently use different accounting systems. As a
result, the definition of a service may differ from hospital to hospital in
addition to the differences in the price of the service.

Although hospital administrators do not have to give patients advance noticeof their total hill, hospitals in Illinois are required to tell the state
government. The following are some examples of total charges for outpatient
services reported by Chicago hospitals in 1988:
[29]

The charge for a mammogram varied from $13 to $127 – a difference of almost 10
to one.

The charge for a CT scan varied from $59 to $635 – a difference of more than
10 to one.

If
patients knew about these differences, they could significantly reduce their
medical bills. Unfortunately, most do not.

Hospital prices today are an unfortunate remnant of the system of cost-plus
hospital finance. Since 90 percent of hospital revenue came from insurers who
reimbursed on the basis of costs, a hospital's line item prices were relevant
only for a small fraction of the hospital's income – the 10 percent paid
out-of-pocket by patients. Hospital line item prices were used in some of the
more complicated cost-plus reimbursement formulas, however. This gave hospitals
an incentive to artificially raise or lower prices in order to manipulate their
reimbursement from third-party payers.

In a
short period of time, hospital prices became artifacts rather than real prices
determined by the forces of supply and demand. Why don't hospital line item
prices reflect true hospital costs? Because hospital prices haven't served that
purpose for decades.

We
cannot possibly control spiraling health care costs in this country unless
patients can make prudent buying decisions. That cannot happen unless patients
are confronted with a total package price prior to admission to hospitals.
Accordingly, any hospital that receives Medicare money should be required to
quote preadmission prices – either per procedure or per diem – to all patients.
This is a requirement to quote prices, not an attempt to create price controls.
Hospitals would remain free to charge any price to any patient.